HP, Dell and the paradox of the disrupted

If a picture is worth a thousand words, what story does the above picture tell? It tells the story of one of the most dominant coalitions of our time — Wintel — coming apart at the seams. In quantitative and qualitative terms, it suggests that if this is the best that the four horsemen of the PC industry have to offer going forward, this tale won’t be ending too well. And things are looking particularly grim for Hewlett Packard and Dell, the two best-known faces of the personal computing industry (see also, “HP: The Garage is Closed”).

As much as anything, it’s a stark reminder that disruption doesn’t give a crap about legacies. This is something that I have seen again and again in my twenty years as an entrepreneur in network infrastructure, Web-based services and mobile applications.

Once upon a time, Dell was the personification of the American dream. Born in Michael Dell’s college dorm room, Dell’s founding had the homegrown optimism of a Norman Rockwell painting. Dell was the embodiment of scalable build logistics, coupled with standout customer service. It was the Amazon of personal computing — before Amazon existed.

As for HP, you remember “the HP way” and the original “two founders in a garage” narrative, right? The company was a true force driven by clear directives such as, “attack the undefended hill” and “number one or two in each targeted market.”

However, there is a paradoxical truth. Although disruptive change takes far longer to occur than most people account for, once it kicks in, it steamrolls incumbents faster than they can course-correct.

The paradox of the disrupted

At its core, the Dell and HP story is about the shift to integrated, differentiated systems lead by software (see also, Mark Andreessen’s “Why Software is Eating the World”). Like most hardware-centric companies, neither HP nor Dell ever grokked software, certainly not in terms of any integrated strategy (JetSend, Chai and WebOS were all failed software efforts by HP). This gets to the nut of why these guys missed the boat on mobile and tablets. HP, after all, actually owned Palm, yet lacked both the clarity and conviction to intelligently pursue the software play required to succeed in mobile — only the single largest segment of the next 20 years!

Then again, they didn’t think they had to. After all, the horizontal model that made Microsoft a lethal killer in segment after segment had dominated the conventional wisdom of the preceding 20 years. Built on the premise of industry alignment around loosely-coupled, but coordinated efforts between hardware and software component makers, the horizontal ethos dictated that hardware folks worry about hardware and leave the software differentiation to the software guys — separation of church and state, so to speak.

We’re all lemmings in terms of following what works. So when the horizontal model made Bill Gates the richest man in the world, industry after industry embraced it as the one right way.

With the advent of the Internet, however, a vicious cycle of commoditization — horizontal’s downside — began to play out. We are now at the endgame of that cycle, a point where few companies can make money via commodity economics, and HP and Dell are Exhibit A and B, respectively.

I believe that the next 20 years will look a lot less like the Microsoft model and more like the Apple differentiation model, where every effort is focused on the central goal of delivering complete product solutions and richer, more satisfying customer outcomes. In other words, we’ll move to an economy where businesses and industries are defined by tight integration from bricks and clicks to hardware, software and service — aka, the vertical model.

Does either HP or Dell have what it takes to make this transition? No one really knows. But what gets me excited is that some companies will figure this one out. Their success will, in turn, provide the roadmap to re-invention for the next generation of innovators to follow. We are lemmings after all.

So get ready, as we are at the end of a cycle, and approaching the beginning of a new one. It’s post-global, post-digital and post-commoditization. The new cycle is all about making the inefficient more efficient, and creating differentiation where commodization exists. The rise of integrated systems is upon us.

Mark Sigal is an eight-time entrepreneur, whose ventures have sold to Apple, IBM and Intel. He is chief product officer at Unicorn Labs, an eBooks and eLearning platform provider.